RIMM: Citi Says Outlook “Binary”; Coin Toss, Anyone?

By Tiernan Ray

From Citigroup’s Jim Suva this morning comes the mother of all Research in Motion (RIMM) reports, 21 pages long, under the title “Outlook is Increasingly Binary.” Suva says that given uncertainty as to whether RiM’s recently announced new BlackBerries will hit the market in time for the holidays, there is a wide swath of estimate revisions that are possible, up or down, for the company’s earnings.

Writes Suva, “Investors are unsure if Bold will hit AT&T (T) and if Storm will be at Verizon [Communications' Verizon Wireless] (VZ) in time/scale for the holidays.”

Suva provides a handy graphic, a flow-chart or decision tree, with possible outcomes. 25% chance RiM’s new products do not reach stores for the holidays, in which case, the stock goes to $45. More likely is that the products do make it in time, consumer uptake is strong, and profit margins improve as a result. That would an $80 price target. But there’s also a 19% probability in there that consumers are disappointed with the product, and a 45% chance that even with strong sales of Bold and Storm, profits don’t improve. The latter two scenarios result in stock prices of $52.50 and $72.50, respectively.

But there’s no doubt which way Suva thinks investor sentiment is likely to head: RiM is now a consumer company, and so its stock won’t be as rich as it has been in past.

As for the shares, Suva has a “Hold” rating, and is lowering his price target from $90 to $64. That’s just 12 times his projected $5.44 per share in earnings over the next four quarters, says Suva. That’s fairly low for RiM, historically, which Suva says is because “significant changes in RiM’s strategy and business model will likely cap the valuation investors awar RiM shares, as consumer-focused technology companies generally carry lower valuations due to the inherently lower margins and increased competition in the consumer sector.”

You could of course, buy call options on RIMM stock, given that the price of RIMM calls is inexpensive, in Suva’s view. But given that the reward-to-risk ratio for buying the stock is four-to-one, according to the scenarios Suva is modeling, he thinks the better bet is just buying the stock outright.

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There are 20 comments

OCTOBER 21, 2008 11:33 A.M.

Beltway Greg wrote:

Did anyone mention the IPhone? Why else would they announce products that are months away from deployment? This stock traded at a P/E that was 30-40% larger than Apples, and essentially sold one product to a very narrow market that was created when it had no competition. The other shoe may drop at 4:01 EST. If Apple has surpassed 10 million and I believe that it has, it most definitely came at the expense of RIMM.

Beltway Greg

OCTOBER 21, 2008 11:47 A.M.

yup wrote:

this is just a mess, exactly why options should be suspended imo. rimms been targeted by these honkeys trying to cover their shorts for nov, thats why we see constant negative feeds recycled every single day to remind us. worst thing is its down to the bone, its not like appl which is at 100 and can afford a diet. than constant talks of being baught out when it goes down. analyst credibility means nothing anymore as they all have an agenda, im in for the long 64 price tag is too low for something that will hit 70 soon and was at 68 weeks ago, cheers

OCTOBER 21, 2008 12:25 P.M.

Bill wrote:

Shorts, fanboys, donkeys, all repeat the same Apple-focused blather all the way up and down (and back up again). RIMM has over 50% of the smartphone market and this market is not a zero-sum game so superficial/unsubstantiated comments about Apple's growth coming at the expense of RIMM is just (yawn) very transparent yammering from the usual suspects. RIMM and Apple will probably both do fine, but it's really a question of whether you believe RIMM's view that "someday all phones will be smartphones".

OCTOBER 21, 2008 12:33 P.M.

Tech Guy wrote:

Storm won't do well mainly because of Verizon's altitude. Verizon's business model is still in 20th century.

Verizon is known to block all 3rd party applications and always charge expensive fees for every app and services.

For other carriers, you can use LifeInPocket Navigation for free while Verizon user can only use Verizon’s own VZ Navigation for $9.99/month which is not as goods as LifeInPocket.

Who would want to buy a phone that you have to pay big money for apps and services?.

Most of my friends are using The popular LifeInPocket no matter they are with AT&T, Nextel, Sprint etc (but not Verizon). LifeInPocket is the best mobile phone GPS navigation I ever used. It's free, easy to download and user friendly.
Its address sync capability (with Yahoo, GMAIL, Outlook etc) allow you to use those addresses for navigation by single click.
I use their location messaging to replace text messaging which also saved a lot of money.

Who would what to buy this expensive phone, pay expensive monthly plan and being restricted by Verizon for everything thus they can squeeze more money from you!

It's a nice phone while the greed of carrier carrier is going to ruin it.

OCTOBER 21, 2008 1:02 P.M.

scurvy wrote:

Since when are options at 88% implied volatility cheap? On a historic basis to RIMM's past it might be "cheap" but even by the analyst's own admission, it's a different company now -- so are the options.

I hate analysts, who don't understand options, recommending the super basic (and flawed) strategies of just long calls or puts to their clients.

OCTOBER 21, 2008 1:31 P.M.

Anonymous wrote:

Orange UK Pulls BlackBerry Bold
TheStreet.com TV (Wed, Oct 15)

OCTOBER 21, 2008 1:47 P.M.

sd wrote:

theres enough bad news about the economy, these donkeys should be suspended from making uneducated flawed comments that can end up hurting companies

Apple sold a staggering 6.9 billion of its iPhone 3Gs in the quarter, more than the 6.1 million total first-generation iPhones sold. The iPhone launched July 11 and is available in more than 50 countries.

Research in Motion reported it sold 6.1 million BlackBerry smart phones in the quarter that ended Aug. 30.

Apple also set quarterly records for Macintosh and iPod sales. Apple said it sold 2.6 million Macs and 11.1 million iPods, further allaying fears that the sluggish economy would weigh on Apple's back-to-school sales.

OCTOBER 21, 2008 6:50 P.M.

What Me Worry? wrote:

Apple sold a staggering 6.9 million of its iPhone 3Gs in the quarter, more than the 6.1 million total first-generation iPhones sold. The iPhone launched July 11 and is available in more than 50 countries.

Research in Motion reported it sold 6.1 million BlackBerry smart phones in the quarter that ended Aug. 30.

Edward Jones analyst Bill Kreher said overtaking RIM in such short order was a "tremendous accomplishment."

"It's jaw-dropping," Kreher said.

Apple also set quarterly records for Macintosh and iPod sales. Apple said it sold 2.6 million Macs and 11.1 million iPods, further allaying fears that the sluggish economy would weigh on Apple's back-to-school sales.

OCTOBER 21, 2008 7:18 P.M.

Roberto Ramirez wrote:

All of you that talk about rimm, think they only sell in the USA. Blackberry is sold all over the world now and the growth is impressive. In mexico de bold is sold out, and the same is happening in the rest of latin america

OCTOBER 21, 2008 9:23 P.M.

heh wrote:

aapl certainly did well...everyone is being too hard on rim right now with new phones hitting the market, and holiday season coming, and maybe if something positive happens with the economy i cant see rim at 64

OCTOBER 21, 2008 10:07 P.M.

iPhone wrote:

rimm is toast...

OCTOBER 22, 2008 6:57 A.M.

H.H.D. wrote:

THESE PINHEAD,NUMBSCULL ANALYST SHOULD BE BANNED FROM MAKING THEIR KNOWINGLY FALSE COMMENTS ABOUT A GOOD COMPANY & ITS PRODUCTS SO THEY CAN BENEFIT."EVEN I CAN SEE THROUGH THESE FALSE COMMENTS"

OCTOBER 22, 2008 10:14 A.M.

yea wrote:

hhd exactly, its them that brought it down in the first place for missing target by very small faction. theres holiday season coming, there new phones, and its way to early for them to predict sales or whats gunna happen, once the options clear it should be good again

OCTOBER 22, 2008 4:56 P.M.

stktrader wrote:

cramer is a prat today dont buy aapl but buy rimm .When it was at 135 to hit over 200 at 96 it was apparently dirt cheap now below 50 still making excuses how come this boldy locks is still employed beggers belief

OCTOBER 22, 2008 5:30 P.M.

stktrader wrote:

now aapl is juicier than rimm rimm is finished acc to cramer thank god i didnt listen to him like some poor folk a few months ago went short instead closed but may go long around 43,45 mark any body with basic knowledge knew their were to many competiters in the smartphone sec because that is were the medium term market is heading rimm is more realistaclly priced now there could be a short bounce to 60 65 before it tails back to 45,50, cramer is totally discredited hes got a nerve to still analyse stocks after is tips :if he tipped a restaurent if would go down the pan

OCTOBER 22, 2008 7:01 P.M.

meh wrote:

analysts are trying to pound rimm down to 40 with their options, that has been the biggest problem their all betting against it theres no other reason. theres no reason for it to be this low their not going out of business..i mean sure economy is a mess...but holiday seasons coming, new phones are out ,, theres no reason for all of this

OCTOBER 23, 2008 11:41 A.M.

Max wrote:

I agree!! there should be a law prohibiting these analysts from yapping their mouths. The unfortunate thing is that there are too many morons out there listening to them.

OCTOBER 23, 2008 4:52 P.M.

stktrader wrote:

someone with some sense, totally agree with you max when you tell thier followers they shoot thier mouths off. once they are led to oblivion they change there tune, to late by then. America needs alot more people like you who can think for themselves, then these so called professional nostradamuses on the books of wall street journall and the rest can and will be shown the door.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.